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Will You Get a Raise in 2011? 5 Workplace Predictions for the New Year

With unpaid furloughs, salary freezes, and lingering unemployment, 2010 was a tough year for many workers. Some were out-of-work for so long that unemployment benefits ran out, while others gave up vacation days and worked overtime to fill the shoes of their laid-off coworkers.

At the same time, companies were forced to make tough decisions about reducing staff and slashing budgets while staying competitive.

Will 2011 bring a sunnier outlook and higher pay?

We asked compensation and benefits experts for their predictions on the year to come. Here’s what they told us:

1. Small salary increases for the private sector

This could be the year that many employers end salary freezes. “Some employees have gone three or four years without a raise,” says Catherine Hartmann, a partner at global workforce consulting company Mercer. “During that same time frame, they may have experienced morale problems if they’ve had lay-offs, so companies are going to try to give increases, especially to their high performers and those people they can’t afford to lose.”

A survey by Buck Consultants found that salary increases for this year will average 2.8%, compared to 2.5% in 2010 and just 1.8% in 2009.

However, Tom Burke, a Director of Compensation Consulting at Buck Consultants, says that public sector workers may not see these kinds of increases as governments work to rein in spending. “We’re seeing signs of that with the federal pay freeze, but it’s happening across the country at a city level and a state level,” he says. “Cities, states, and counties are being forced to slash their budgets.”

2. More referral and sign-on bonuses

It may sound counterintuitive, but companies are increasingly using referral and sign-on bonuses to lure top talent. “Referral bonuses are sort of a hidden tool that a lot of organizations are starting to rely on,” says Burke. He adds that instead of paying thousands of dollars to a headhunter, employers can spend around $1,000 to find someone who has ties to the organization and may be less of a flight risk. Plus, it’s believed that the person who made the referral may become more loyal to the organization after bringing in a friend or colleague.

Katie Miller Busch, a pay and performance advisor at HR Compensation Consultants and president of the South Florida Compensation & Benefits Association, says she’s seeing more sign-on bonuses as well. But such offers are typically the result of compensation negotiations, often limited to senior-level professionals and above.

3. Greater emphasis on retaining top performers

Once they’ve recruited superstar workers, companies are eager to keep them, especially as hiring freezes are beginning to thaw. Busch says that while top performers used to be rewarded with extra vacation days, that’s not as popular these days because companies don’t have the bandwidth to cover extra time off. Instead, she’s seeing an increased focus on retaining talent through “stretch assignments to keep them engaged and motivated and getting them professional development.”

4. A return to 401(k) matching and fewer furloughs

Many companies that halted or reduced 401(k) matching during the downturn may start it up again in 2011. “There were a couple of years where companies made the decision that people would rather have jobs [than 401(k) matching],” says Hartmann. Furloughs were another common alternative to lay-offs. With the economy finally showing signs of improvement, employers may actually start giving back what they had to take during the recession.

5. Caution surrounding healthcare costs

“Because of healthcare reform and the continual increase in healthcare costs, we’ll see employers looking more at how employees are using their plans,” says Burke, adding that companies may look more closely at dependent eligibility and focus more on preventative health programs. In fact, Buck Consultants’ 2010 Global Wellness Survey found that 62% of employers in the United States offer some kind of incentive program for wellness. Another 13% plan to offer such programs, which could include financial or non-financial incentives for working out or quitting smoking.

The healthcare overhaul also means that as of January 1, 2011, you can’t use your flexible spending account (FSA) to pay for over-the-counter drugs without a prescription from your doctor. If you’re planning on using your FSA to pay for pricey elective procedures like LASIK or porcelain crowns, you should also note that yearly contributions to an FSA will be capped at $2,500 starting in 2013. Currently, most employers limit contributions to $5,000.

Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.